Financial Risk Manager Part 2
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A CRO of a hedge fund is asking the risk team to develop a term-structure model that is appropriate for fitting interest rates for use in the fund's options pricing practice. The risk team is evaluating among several interest rate models with time-dependent drift and time-dependent volatility functions. Which of the following is a correct description of the specified model?
A
In the Ho-Lee model, the drift of the interest rate process is presumed to be constant.
B
In the Ho-Lee model, when the short-term rate is above its long-run equilibrium value, the drift is presumed to be negative.
C
In the Cox-Ingersoll-Ross model, the basis-point volatility of the short-term rate is presumed to be proportional to the square root of the rate, and short-term rates cannot be negative.
D
In the Cox-Ingersoll-Ross model, the volatility of the short-term rate is presumed to be...